Collecting unpaid debt is a big business. According to a report by Ernst and Young, collection agencies recovered about $54.9 billion in total debt in 2010, with medical and credit card debt topping the list. From this, the agencies themselves earned about $10.3 billion in commissions.
Much of what’s collected by third-party agencies is referred to as “zombie debt,” which is past debt thought to be dead and gone only to be revived to the surprise of many consumers. This debt comes back to life when it’s sold by the original lender or creditor to collection agencies that then try to recover unpaid balances, often years since the last time a payment was made.
Handling zombie debt may be more complicated than it appears, especially if you mistakenly make the situation worse. If you’re faced with old debt from your past, take these steps to get rid of it for good.
1. Know the laws and limitations
Generally, the most important laws related to zombie debt are ones that set the limit on how long this debt can legally be collected. The length of time ranges from three to 15 years depending on the state. You can check the statue of limitations for your state using this map.
Dates are typically determined by the last activity on the debt, which is often when the last payment made. Once the account has been inactivate for longer than the legal limit, debt collectors won’t be able to sue and collect.
In addition, all debt collection including zombie debt is subject to the Fair Debt Collection Practices Act. This law protects consumer from unfair collection practices. Some important aspects of this law require that debt collectors:
- Contact you only between 8 a.m. and 9 p.m.
- Not harass or abuse you.
- Not lie when collecting debts, such as falsely implying that you have committed a crime.
- Stop contacting you if you ask them to do so in writing.
If you believe that debt collectors have violated these laws, file a complaint with the FTC and your state attorney general and consider legal action against the agency with an attorney.
2. Don’t act or admit to anything
If you’re contacted about zombie debt, you’ll need to be careful about what you say or do next.
Even if you suspect you may owe the debt, avoid admitting it’s yours.
Paying or promising to pay any portion of the zombie debt typically isn’t advised for a few reasons. First, paying any part of the debt can reset the activity date related to the statute of limitations and take away the protections you have by law. A payment can also put the debt back on your credit report and harm your credit score, too.
3. Check the debt facts
Before you act on any claims by debt collectors, investigate first. Some steps to take include:
- Ask questions. Debt collectors cannot legally lie to you about your debt. You can ask if debt is beyond the legal limit for when it can be collected or when the last payment was made. If collectors respond, which they aren’t required and may refuse to do, their answer must be truthful.
- Ask for documentation. You can dispute the debt in writing and ask for the debt collector to verify that you own the debt. Until they do so, they cannot continue to attempt to collect. Make sure to request and verify that the collector possesses the right to collect your debt, too.
- Check your credit report. This should shed light on whether you actually owe the debt as well as when the account was last active.
- Check old statements and correspondence. Find out if the debt is really owed and confirm there have been no errors on dates or amounts.
4. Demand collectors cease and desist
Even though the collectors might not be able to legally pursue the debt, they can still ask you to pay. This may include phone calls making you feel guilty about owing the debt as well as other practices that can test the limits of the law.
If debt collectors can’t legally make you pay because it’s beyond the statute of limitations, send a “cease and desist” notice to force collectors to stop the phone calls. You can use a template like this one for your letter.
Keep in mind that choosing not to pay means that debt will likely stay on your credit report and lower your credit score until seven years pass.
If you have further concerns, talk to a lawyer about your case.
5. If you decide to pay, negotiate
Even though paying zombie debt often isn’t legally required, you may still decide to pay or settle to try to improve your credit.
Before you pay, handle the case like you normally would when dealing with debt collectors. You may be able to negotiate and reduce your balance. Debt collectors often buy this debt for pennies on the dollar, making them more willing to negotiate. Consider offering half or even less than the outstanding amount.
Before you actually make a payment, make sure to get the deal in writing. The letter should state that the full amount of the debt is considered settled and you won’t be responsible for anything beyond this amount. If you’re not careful about this, any payment you send in might be counted as a partial payment, potentially putting you back on the hook for the full amount.